Trade dispute tests Uganda, Kenya ties

There are growing fears that a breakdown in relations between Kampala and Nairobi could disfigure the 2024 balance sheet of both countries that share an approximately 814km border. The latest trade tiff has been occasioned by Kampala’s decision to transition from the current Open Tender System (OTS) used to import petroleum products to a new Government-to-Government (G-to-G) system.

Uganda has sought redress in the East African Court of Justice (EACJ) after Kenya’s Energy and Petroleum Regulatory Authority (Epra) last September rejected the Uganda National Oil Company or Unoc’s request to grant it a Petroleum Import Licence.

Unoc needs the licence to transport petroleum products to Uganda through Kenya’s fuel pipeline after exclusively sourcing them from Vitol Bahrain, a Swiss-based Dutch global energy and commodities firm. Kampala entered a deal with the firm on November 6 last year, ending decades of dependence on Kenya.

Court documents filed with the EACJ say that early last year, Kenyan officials assured Ugandans that they are amenable to this new policy shift under the auspices of the East African Community Treaty and protocols. Upon engagements with the relevant authorities in Kenya, Unoc—which is now charged with the importation of all petroleum products—sought to enter into a storage and transportation agreement with the Kenya Pipeline Company (KPC). 

Kenyan authorities demanded that Unoc meet certain regulatory requirements, including obtaining an import, export, and wholesome products licence from Epra.

In a bid to secure the license, Unoc furnished the Kenyan authorities with registration of its branch,  a Personal Identification Number or PIN for the branch, and a Single Business Permit.

Thereafter, the Ugandan government said Unoc submitted an online application for a licence. It was, however, turned down, with Epra informing Kampala of the outcome on September 30 last year.  In its communication, Epra said Unoc had not provided proof of annual sales of 6.6 million litres of oil or ownership of five licensed retail petrol stations or ownership of a licensed petroleum depot.

Matters weren’t helped when on November 7 last year, the High Court in Kenya issued a conservatory order restraining Epra from granting Unoc an Import, Export, and Wholesome of export products except liquefied petroleum gas (LPG).  “The Republic of Uganda, at all material times, sought the intervention of the Republic of Kenya to restrain its organs of State from infringing the principles of and provisions of the treaty and protocols,” Uganda’s Attorney General, Kiryowa Kiwanuka, said in the case at the EACJ, adding that  Uganda is a landlocked country and has a right under the EAC treaty and the United Nations  Convention in the law of the sea, to which Kenya is signatory to, of access to and from the sea and freedom of transit through the territory of Kenya by all means of transport.

Mr Kiwanuka added: “The actions of the judiciary of the Republic of Kenya in issuing the conservatory orders restraining Epra from granting the licence to the applicant (Unoc) amounts to an action of state for which the respondent (Kenya’s Attorney  General) is responsible.”

Palpable tension

Despite being key trading partners, there has been an almost palpable tension between Kampala and Nairobi since 2016 when the former decided to build the East African Crude Pipeline (Eacop) through Tanzania instead of Kenya.

The fruitless lobbying efforts of Ms Ruth Nankabirwa, Uganda’s Energy minister, as Nairobi held its ground on the key requirements for Unoc at the backend of last year portend ominous signs per some observers.

Last week, Ms Irene Batebe, the Energy ministry Permanent Secretary (PS), called for calm, stressing that “Kenya has not blocked any Ugandan bound importation of petroleum products.”

“Uganda continues to use the Kenyan importation system with the Ugandan oil marketing Companies (OMCs) confirming their import requirements through their affiliates in Kenya until the Government of Uganda secures clearance from Unoc, the importation from the Government of Kenya. The country will continue receiving petroleum products,” PS Batebe told this publication, adding that this will go on as they continue evaluating the options available, “and will duly communicate the next steps to Unoc and the importing OMCs.”

The rhetoric from Kampala was previously pointed, with President Museveni accusing Kenyan middlemen (read OMCs) of inflating fuel prices by up to 59 percent.  This was shortly before Kampala moved to monopolise the importation of petroleum products through the institution of the Petroleum Supply (Amendment) Act, 2023—a  law that in theory gives Unoc exclusive rights over the importation of petroleum products into the country.

Uganda imports an average of 2.5 billion litres of petroleum annually valued at $2 billion. KPC handles nearly 90 percent of the cargo.

Nairobi fears that a handy source of cash could be staved off if Uganda opts to bring the cargo through the Central Corridor via Tanzania, with working relations between the two countries in a good place following the Eacop deal.

Kenya has imported oil and sold it on to the hinterland via the Northern Corridor, with Uganda the gateway. This now appears to be in jeopardy.

Last year, Minister Nankabirwa took a veiled dig at Kenya. She made it clear that Kampala wants more self-sufficiency on oil deals.  “Kenya has for decades decided what petroleum products Uganda buys, when, from where, how much, who buys and at what price,” Minister Nankabirwa said.

Protectionism

The recent developments have moved critics to question regional integration plans that appeared to gain traction with the expansion of the East African Community (EAC).

In his end-of-year address, President  Museveni framed his speech on four points. Regional integration came in third. Mr Museveni, an elder statesman who has superintended over Uganda since 1986, argued that regional integration is needed because it provides wider markets for Ugandan goods and services. 

To show that he is against the policy of protecting domestic industries against foreign competition using tariffs, subsidies, and import quotas, Mr Museveni said that last year he swiftly moved to end what he termed as the unholy idea of banning Tanzanian rice.

“Why ban Tanzanian rice?” Mr Museveni rhetorically asked, adding;  “It was because it was cheaper than the Ugandan rice produced by swamp destroyers.” The proposal, he explained, would have led Uganda to make three blunders or sins, as he preferred to call them.

“Sin number one, punishes Ugandan rice consumers—I am not one of them—by forcing them to buy expensive rice from Uganda’s inefficient producers and,  therefore, empty their pockets. Secondly, kill or disrupt the Tanzanian efficient rice producers instead of helping them to grow. Thirdly, provoke Tanzania to ban our products going into the Tanzanian market and, therefore, propel the suicidal practice of protectionism that has crippled many regions in the world,” Mr Museveni said.

Ugandan business people, the Ugandan president added, have been encouraged to institute protectionism measures on grounds that other countries have put in place non-tariff barriers (NTBs) practiced by other countries.

In the early years of his National Resistance Movement (NRM) government, Mr Museveni accused Daniel arap Moi, then president of Kenya, of closing Uganda’s most critical border with her primal trading partner. 

Though there was immense pressure for him to retaliate, Mr Museveni said he chose a different route and “today, Uganda’s exports to Kenya are either equal to our imports from there or, sometimes, they are higher.”

He added: “Rationality cannot be ignored indefinitely. We shall continue discussing with our EAC partners and, I am sure, we shall end up with a real common market, free of non-tariff barriers because those barriers hurt the wanainchi of all our countries.”

Ruto bromance

Back in August of 2022, there was hope that commerce and diplomatic relations between Kampala and Nairobi would be at their best after Mr William Ruto, who had struck a close relationship with Mr Museveni, emerged as victor from Kenya’s hotly contested presidential elections.

Before he was sworn in as President, Mr Ruto had visited Uganda five times, including on July 6, 2021, when he joined Museveni in the unveiling of a vaccine manufacturing facility.

The facility in Matugga, Wakiso District, was built by Dei Group, a Ugandan company associated with Ugandan tycoon Matthias Magoola.

The following day in the company of Mr Frank Tumwebaze, Uganda’s Agriculture minister, president Ruto visited the Nshaara government ranch in Mr Museveni’s home district of Kiruhura.

Mr Ruto was slated to return to Kampala in August of 2021, but, in the sign of a strained relationship with his boss President Uhuru Kenyatta, he was theatrically stopped from boarding his private jet destined for Entebbe International Airport.

The reason given was that he had not sought clearance as all civil servants should be, triggering protests.

When on August 16 Kenya’s Independent Electoral and Boundaries Commission IEBC announced Ruto winner—having garnered 50.5 percent, narrowly edging out his former ally Raila Odinga who got 48.9 percent—Museveni, though the result was still in dispute, was among the first African leaders to congratulate the victor.

When Kenya’s Supreme dismissed Odinga’s petition on grounds that evidence that was supporting it was nothing but “hot air” and “forgeries” Mr Museveni was quick to applaud his ally.

Uganda’s strongman added that he is looking forward to working with him to strengthen their strategic partnership in advancing the EAC agenda.

Indeed, when he took the mantle, President Ruto made the right noises in the ears of those in power in Kampala. Not least when he said that the impasse over the Ugandan milk saturating Kenya is easy to solve. Mr Ruto said Ugandan milk, which is generally considered cheaper when compared to Kenyan milk, should be taken up by the Kenyan market.  

Bromance no more?

However, on March 14 last year, Harry Kimtai, Kenya’s Agriculture and Livestock Development Permanent Secretary, announced the suspension of the ban on milk powder imports from Uganda. “Take note that the importation of products under the East African Community (EAC) protocol refers to goods being imported from outside the East African Community, while goods traded within the EAC are referred to as transfers,” Kimtai said. The decision was swiftly reversed that month. Though Ruto’s government had lifted the ban it continued to target milk imported into East Africa’s biggest economy by Brookside Dairy Uganda. Brookside, which is owned by the family of Ruto’s ally-turned-rival Uhuru Kenyatta, said Nairobi had declined its 116 export permit applications. It stopped short of saying that this looked like a supremacy battle between Ruto and his former boss, Uhuru Kenyatta.

However, this fight in Nairobi had ramifications in Kampala. For one, several Ugandan milk farmers and processors left the market, forcing Kampala to aggressively look for markets beyond the region. The trade tiff over importation of petroleum products shows deep fissures still abound.